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Accounting for Renewable Electricity Saved by Efficiency

How much does it matter if energy efficiency programs like ENERGY STAR or appliance energy standards save electricity generated by renewable resources like wind and solar, rather than from fossil fuel power plants? Certainly from the perspective of reducing carbon pollution, there’s a strong case that saving renewable electricity is not as valuable as saving energy generated from burning fossil fuels. As the role of renewable electricity in the nation’s electricity supply grows, this question will become increasingly important to think through.

Recognizing this, the US Department of Energy (DOE) took a great step forward to update its thinking and approach, with a report released in October. NRDC joined with the American Public Power Association, Edison Electric Institute, and the National Rural Electric Cooperatives Association to request that DOE rethink these issues and also joined in commenting on DOE’s initial thoughts earlier this year. DOE’s efforts were further aided by thoughtful input from the natural gas industry, which also has great interest in getting the accounting right. The overall result at DOE shows that constructive, collaborative efforts can deliver real progress.

Accounting for “source” and “site” energy use

The underlying issue, and DOE’s updated thinking, rests on some rather arcane accounting treatment that distinguishes between “site” energy and “source” energy. Site energy is the amount of electricity used at a home or business (i.e., the kilowatt-hours consumed by lights, appliances and equipment); source energy is the amount of energy used at power plants to generate and deliver that electricity to the site.

Because only about 30% of the fuel that goes into the average fossil fuel power plant on the nation’s grid is ultimately delivered as electricity to a consumer’s site (with the rest lost as waste heat at the power plant or in the grid), source energy accounting for fossil fuel plants indicates energy use that is about three times higher than site energy accounting. (New high efficiency natural gas power plants, while not nearly as low-emitting as wind or solar, are far more efficient than the average units on the grid and a big step forward, converting closer to 50% of the fuel into useful delivered electricity.)

Accounting for source energy of different energy options can be informative for good policy; e.g., in comparing between the amount of energy used to make hot water for households with either an electric or natural gas water heater, it makes sense to compare the amount of energy that would be used to deliver the natural gas to the water heater and operate it, with the energy that would be used in the grid to make the electricity used in the electric water heater. Ignoring the fact that about two-thirds of the fossil fuel energy used in making electricity is lost as waste heat in the power plant and in the transmission and distribution system would give the incorrect impression that an electric water heater uses much less energy than a gas one.

DOE’s current standards-setting process for household natural gas furnaces is an excellent example of where proper source accounting could matter. In developing the proposed standard, DOE’s detailed analysis found that while a stronger standard will deliver great consumer and environmental benefits overall, some fraction of households that currently use natural gas furnaces would switch to electric heating, due to a combination of installation challenges in special circumstances and higher up-front costs. Using its traditional source accounting approach, DOE estimated that while the stronger standard would save about 7 quads (quadrillion BTUs) of natural gas energy, electricity used for heating would increase by about 4.3 quads, resulting in a net savings of 2.8 quads.

However, if DOE had used an updated source accounting methodology and the assumption that 50% of generation is from non-fossil fuel power plants sources by 2040 (e.g., including wind, solar, hydro and nuclear), the 7 quads of natural gas energy savings would be offset by closer to only 3 quads of increased fossil fuel used for generating electricity, for a net savings of 4 quads. So would the standard save 2.8 quads or 4 quads of energy? That’s a big difference, and might be enough to sway policy-makers to consider a different choice.

Of course, the standards-setting process involves balancing a host of issues—notably including consumer, environmental and business impacts—and not just total energy savings; there’s not a direct link between the estimated total savings and the ultimate policy decision. Further, while the furnace standards highlight the growing importance of this accounting issue, it makes sense to start thinking about the implications for future policy, rather than suggest a significant and sudden change in the current standards process.

A key challenge with DOE’s traditional source accounting approach

While using source accounting makes sense, the key challenge is that DOE has traditionally used ‘fossil fuel equivalency’ when accounting for renewable electricity. In this approach, the source value assigned to renewable electricity is based on the average source energy of all fossil fuel power plants on the grid. That’s entirely artificial, and suggests that a kWh of clean wind or solar power raises the same concern as a kWh from the oldest, least efficient, dirtiest fossil fuel power plant—and that’s just not right. As the supply of clean renewable electricity increases over the coming decades, the fossil fuel equivalency approach would become increasingly misleading and unhelpful for policymakers.

So what’s the right number to use? It might be possible to come up with a technically accurate source number for wind and solar (e.g., relating to the fraction of wind energy blowing across the countryside that is captured by a wind turbine, or the fraction of sunlight that is converted into electricity in a solar photovoltaic panel). However, to be clear, that source accounting approach doesn’t have a bearing on what society cares about, e.g., the carbon emissions of those generators, so that wouldn’t be of much use or interest for policy-making, either.

A good next step from DOE

DOE has proposed a sensible, transparent methodology that it calls “captured energy” for setting the source energy of renewable electricity generation. The captured energy methodology assigns a source energy value to renewable electricity that is exactly equal to the electricity produced, with no losses other than those in transmission and distribution from the generator to the site. This approach is a big improvement.

Notably, while the impact of adopting the captured energy methodology is relatively small under today’s energy mix (i.e., with relatively little wind and solar compared to that which is anticipated by 2040), it will grow considerably over the coming decades. For example, DOE’s illustrative example shows that the more sensible captured energy methodology could reduce the estimated grid average source energy by about 30%. And to be clear, a major increase in renewable electricity is already on the way due to improving economics and policies such as strong renewable portfolio standards adopted in several states.

What’s next?

There are a number of other issues that remain to be addressed in improving energy accounting, several of which are raised but not answered in DOE’s paper. These include the appropriate treatment of other low-emissions generation, e.g., nuclear and fossil fuel power plants that use carbon capture and storage technology; consideration of marginal rather than average power plants (marginal power plants are those that are affected by an increase or decrease in load, and don’t necessarily have the same carbon intensity as the average generating fleet); avoiding stakeholder confusion and ensuring continuity with historical data when shifting to a more appropriate methodology; choosing the right source accounting methodology for the decision at hand, and thinking about how to weigh up these issues in policy-making.

It would be great if DOE would embark on a broader process to work through some of those important issues, something that NRDC has previously proposed. The constructive contributions of various stakeholders in the current effort indicate that such a process would be valuable and productive.

And more broadly, perhaps it’s time to consider adopting metrics that get closer to the core of society’s interests of superior consumer and business impact, reducing carbon and other harmful emissions, cost, reliability and security. That would surely be a longer-term transition, as much of federal energy policy revolves around energy use and energy savings as key metrics, with a very good track record of success.

Finally, the importance of getting these accounting items right will only grow over time as the nation’s energy mix becomes cleaner, leading to a deeply decarbonized, and economically vibrant energy future. DOE has taken a great step in that direction.